4. All-Party Settlement Agreement
The proposed Settlement Agreement conforms to Rules 12.1 - 12.7 of the Commission's Rules of Practice and Procedure (Rules). In particular, we find that the proposed Settlement Agreement complies with Rule 12.1(d): it is reasonable in light of the whole record, is consistent with the law, and is in the public interest, as we discuss below. The Settlement Agreement is attached to this decision as Attachment A.
Parties had the opportunity to fully review PG&E's prepared testimony and DRA and TURN have participated in the Procurement Review Group (PRG) process. We are confident that parties have addressed concerns and found a reasonable compromise in the following provisions of the Settlement Agreement:
a. The parties agree that the total need to be procured from the 2008 Long-Term Request for Offers (LTRFO) will be limited to 1,512 MWs under peak July conditions, inclusive of the 184 MWs included in the Mariposa PPA.
b. The parties agree that the balance of PG&E's need authorization (1,328 MWs) will be met, but not exceeded, by one application for approval of additional agreements resulting from PG&E's 2008 LTRFO.
c. PG&E will meet and confer with the parties in the event that Mariposa Energy requests a PPA amendment that seeks to increase the prices of the Mariposa PPA for capacity, fixed operations and maintenance rate, and variable operations and maintenance costs rate, as set forth in PG&E's confidential testimony. In the event of such an amendment, the prices will not exceed those delineated in the testimony unless the parties concur with the amendment to these prices or PG&E has conducted a Request for Offers (RFO), evaluated market alternatives, and found the new prices proposed for the amendment to be competitive with the results of its RFO. The parties reserve the right to oppose any such amendment. PG&E will require as a condition for any amendment that Mariposa Energy reimburse PG&E for any Commission-awarded intervenor compensation, to the extent that there is intervenor participation in a Commission proceeding regarding the reasonableness of any amendment.
d. PG&E shall recover the costs of all payments made pursuant to the Mariposa PPA through the Energy Resources Recovery Account (ERRA). PG&E shall recover any stranded costs associated with the Mariposa PPA from departing load throughout the term of the PPA as non-bypassable charges consistent with D.04-12-048 and D.08-09-012.
4.1. Settlement is Reasonable in Light of the Whole Record
As described in its testimony, PG&E conducted an open, competitive and fair solicitation and contract selection process. The LTRFO complies with the requirements of D.07-12-052, in that the LTRFO was open to new renewable resources, existing Qualifying Facilities (QF), distributed generation, and repowered and new conventional fossil-fired generation. PG&E describes its outreach process, which was widely publicized and open. PG&E worked closely with its PRG, its Cost Allocation Mechanism (CAM) Group, its Independent Evaluator, and Energy Division Staff in developing the LTRFO offer materials, the evaluation process, the short-listing process, and the selection of the winning participants.4 PG&E received over 48 offers proposing approximately 13,000 MWs.
In addition, the Independent Evaluator was involved in all phases of the solicitation process, as required by D.07-12-052, as modified by D.08-11-008: "Independent Evaluators are to be used for all long-term solicitations that involve affiliate transactions or utility-turnkey offers and for all competitive RFOs seeking products two years or more in duration regardless of the bidders."5 PG&E's use of the Independent Evaluator conforms to the requirements set forth in D.07-12-052.
In working with these advisory groups, PG&E asserts that it specifically identified the required types of products and product requirements in order to conform to the requirements of D.07-12-052. PG&E applied a number of "lessons learned" from its 2004 solicitation and modified both the structure of the 2008 LTRFO and the evaluation attributes considered. For example, PG&E modified provisions that address development milestones, termination provisions, collateral, and damage calculations. PG&E explains that certain evaluation criteria appeared to overlap in the 2004 solicitation and PG&E has now divided those criteria into Project Viability, Technical Reliability, and Environmental Leadership criteria. PG&E also structured this solicitation to address greenhouse gas (GHG) emission responsibility by requiring offers to include two prices for scenarios in which either the seller or PG&E takes the cost responsibility for a resource's GHG emissions. We discuss these aspects below.
We previously established that there is a need for 800-1200 MWs of new generation in Northern California by 2015 and directed PG&E to initiate an all-source solicitation to secure these resources, as described above. D.07-12-052 requires PG&E to procure operationally flexible resources. Because the Mariposa Energy Project is a dispatchable peaking power plant with quick start and spinning reserve capabilities, this project has the requisite operational flexibility to provide "firming" for intermittent renewable resources.6
In its protest and PHC Statement, DRA stated its primary concern regarding the review of this contract; i.e., whether this particular PPA can be considered in isolation and whether it is an optimal complement to other resources PG&E will procure from the 2008 LTRFO solicitation. DRA contends that a holistic approach is required both to ensure that the Mariposa PPA is cost-effective and the best technical option for ratepayers, given the particular combination of resources PG&E intends to procure and to avoid procurement in excess of the authorized need. CARE also stated concerns with cost-effectiveness, as well as viability.
We concur that the remaining need is 1,328 MWs under peak July conditions. It is reasonable that PG&E file one application for approval of additional agreements resulting from its 2008 LTRFO. This approach addresses DRA's concerns regarding a holistic review of the offers and ensures that parties have the ability to analyze the cost-effectiveness of the proposed agreements presented to the Commission for approval.
In addition, CARE and DRA have expressed significant concerns about project viability and wish to ensure that approved projects are ultimately approved and on line. PG&E states that it is cognizant of the issues raised by previous projects that did not come to fruition. PG&E explains that Mariposa Energy, LLC appears to have solid financial backing and that the company has engaged in community outreach to explain the project and to gain support. Mariposa has met with various interested parties in Contra Costa, Alameda, and San Joaquin counties. PG&E also states that Mariposa has entered into discussions with adjacent property owners and plans to hire a public relations firm to assist with additional community outreach efforts.
As discussed in Footnote 2, given that the Bullard and Eastshore facilites elected to terminate their PPAs with PG&E because of local opposition and difficulty in receiving timely siting permits, it is important for PG&E to work closely and proactively with Mariposa and other generators on the public outreach effort. We agree with parties that viability is an important issue in our consideration of approval of the Mariposa PPA and should be considered in our review of future agreements resulting from the 2008 LTRFO.
4.2. Settlement is Consistent with the Law
We find that the PPA and the proposed Settlement Agreement are consistent with the law and our prior decisions. In determining the need for new resources in D.07-12-052, we considered forecasts of energy and peak demand, and compared these with available resources consistent with the preferred loading order, including energy efficiency (EE), demand response (DR), renewable energy, and distributed generation resources. As stated in D.07-12-052, the procurement authority granted by that decision "shall in no way be used by the IOUs to instead reduce or adversely impact procurement of EE, DR, renewables, or QF resources to the maximum extent feasible."7 The proposed PPA is consistent with the requirements of D.07-12-052, including the preferred loading order, and the need for dispatchable ramping resources to firm the intermittent types of renewable resources.8 In its prepared testimony, PG&E has stated that it does not elect to have the Mariposa PPA placed in an energy auction per D.07-09-044. This approach is consistent with the settlement agreement adopted in D.07-09-044 and is therefore reasonable.
We concur with PG&E's determination that the GHG Emissions Performance Standard (EPS) adopted in D.07-01-039 does not apply to this PPA. The EPS applies to contracts of five years duration or greater; contracts with all specified resources; and generating facilities designed and intended to provide electricity at an annualized capacity factor of 60 percent or greater.9 In conformance with the requirements of D.07-01-039, PG&E has demonstrated that the four combustion turbines that comprise the Mariposa Energy project are intended for use as peaking facilities and are anticipated to run at significantly less than 60 percent. We find that the GHG EPS does not apply to the Mariposa PPA.
PG&E must also demonstrate that this contract is consistent with its GHG reduction strategy, as specified in D.07-12-052. This PPA is structured as a tolling agreement, in which PG&E purchases and supplies the natural gas and schedules power from the facility. Because of the flexible operating nature of this project, PG&E explains that it has the flexibility to schedule power from the project when demand is high and other, lower carbon footprint resources are unavailable. Similarly, PG&E can reduce output when demand is low and cleaner, more cost-effective resources are available. We agree with the parties' conclusion that this PPA supports the flexibility required by D.07-12-052, that it is consistent with the overall GHG reduction approach, and will assist PG&E's efforts both to integrate renewable generation into its supply. PG&E will assume certain costs associated with GHG emissions.
In addition, the proposed Settlement Agreement's approach to cost recovery is consistent with prior Commission decisions. It is reasonable to allow PG&E to recover costs associated with the power purchase agreement approved in this decision, through the ERRA mechanism established pursuant to D.02-12-074. The ERRA was established to determine recovery of PG&E's power costs including PPAs. The proposed Settlement Agreement also provides for PG&E to recover any stranded costs associated with departing load related to this PPA through a non-bypassable charge. We concur that this approach is consistent with the recovery mechanism approved in D.04-12-048 and D.08-09-012. PG&E's cost recovery requests are reasonable and should be approved as part of the Settlement Agreement.
PG&E plans to interconnect the Mariposa Project at PG&E's Kelso Substation, located near Byron, CA. PG&E expects the relevant transmission study to be completed by the California Independent System Operator (CAISO) consistent with the Generation Interconnection Process Reform. This approach involves grouping the Mariposa Energy project with other generation interconnection proposals having similar impacts on the transmission system in one transmission study. PG&E states that preliminary results indicate that upgrades of its transmission system will be required and that Mariposa and other new generators in the group will share these costs. We make no finding on these assertions now, but when that information is available, we require PG&E to comply with the requirements of General Order 131-D.
The settlement also provides that PG&E will require reimbursement from Mariposa Energy, LLC, for any intervenor compensation we award for proceedings regarding the reasonableness of amendments to the Mariposa PPA with regard to capacity, the fixed operations and maintenance rate, and the variable operations and maintenance rate. This approach is between PG&E and Mariposa Energy, however, we do clarify that to the extent PG&E recovers such costs from Mariposa Energy, any such intervenor compensation awards cannot be recovered from ratepayers.
4.3. Settlement is in the Public Interest
We agree with parties that approval of the proposed Settlement Agreement is in the public interest. We evaluate the Settlement Agreement as a whole, and conclude that it serves the public interest by expeditiously resolving issues that would otherwise be litigated. Moreover, as discussed above, the Independent Evaluator determined that the PPA merits approval because the economics and general terms and conditions compare favorably to PPAs still under negotiation in the LTRFO solicitation.10 We find that approval of the PPA is consistent with the Commission's goals in terms of PG&E's supply portfolio and assisting PG&E in dispatchability and management of its renewable resources.
4 The PRGs were first established in D.02-08-071 and the Commission has continued to approve these groups, whose purpose is to advise the major investor-owned energy utilities on procurement activities, most recently in D.07-12-052 ; Ordering Paragraph 7 at 300. DRA and TURN are members of PG&E's, SCE's, and SDG&E's PRGs. The CAM Groups were established in D.07-12-052 and are to be called upon when an investor-owned utility (IOU) plans to procure new generation resources and recover the costs of those resources through the cost allocation mechanism established in D.06-07-029, which allows the IOUs to recover procurement costs for system reliability resources from all customers, bundled and unbundled. The CAM Groups are to consist of existing PRG members, Commission staff, one member representing community choice aggregator customers and two members representing direct access customers. D.07-12-052 at 129, 300.
5 D.08-11-008 at 39.
6 PG&E Prepared Testimony at 3-15.
7 Id. at 101.
8 Id. at 276.
9 D.07-01-039, Conclusion of Law 11 at 265, 266 and Conclusions of Law 52 and 53 at 273.
10 PG&E Prepared Testimony, Appendix 5.1-C at 21-22.
